Starting a cleaning service: legal structure
At this point, you’ve decided to start a cleaning service, but you don’t know what your business structure should be – a sole proprietorship, a partnership, an LLC, or a corporation. Information is confusing, there is paperwork to file, and counseling costs a lot of money. Well, not really, I’m here for you.
Most cleaning services start out as a sole proprietorship. For some this works, but I strongly caution against this. Before explaining why, you need to know the differences between the different structures.
Sole proprietorship is the simplest form of business that directly links the owner to the owner without providing any protection to their assets as it is a different entity. Basically, the owner is solely responsible for all debts, profits from all income and the business is he or she for any legal purpose.
A corporation is an entity unto itself and the owner becomes a shareholder in it. In essence, this means that the corporation itself is liable without the owner being subject to any liability through his personal assets. The shares and debts of the company are all in the company and therefore do not affect the private assets of the owners. Special tax rules apply and both entities, including the owner and corporations, must pay taxes separately.
A Limited Liability Company (LLC) is a combination of the two. This legal structure is maintained by the states and not by the federal government, so all income flows to the owners, however, any liability is limited to the company only and the personal assets of the owners and owners as an entity are protected.
For a cleaning service, I highly recommend the LLC structure. You’ll work in expensive homes, offices with sensitive information, and businesses with proprietary technologies and processes. If something happens because of your mistake or the mistake of your employees, you need to make sure that your personal assets are protected and off limits in the event of a lawsuit.
Forming an LLC may seem like a daunting task, but services like LegalZoom and others offer to complete the entire process for as little as $ 150. I highly recommend using such a service as they do a great job at an affordable price and make sure that everything is alright. Note that before you can form an LLC, you must obtain a FEIN number from the IRS. Many websites will try to charge you more than $ 50 for this, but you can easily get this number online from the IRS online system in less than five minutes. As an alternative, many states offer a free online training service or free forms for you to fill out yourself.
Once you have completed this step, you will have the documentation necessary to complete many other tasks, such as opening a business checking account.